The Office for National Statistics said that the official rate of inflation, the consumer prices index (CPI), fell to 3.6pc in January from 4.2pc in December, in line with expectations.

It was the lowest level of annual inflation since November 2010, driven lower as the January 2010 VAT increase dropped out of annual comparisons for the first time. Food price inflation also edged down, and energy prices were roughly flat last month, whereas they rose a year earlier.

Inflation has been falling since hitting a peak of 5.2pc in September, but the fall in January was not enough to prevent the Bank's Governor, Sir Mervyn King, from having to write apublic letter explaining why inflation was more than one percentage point away from the 2pc target.

Sir Mervyn said in his letter that inflation had been above 2pc since the end of 2009 because of Government increases in VAT, and higher import and energy prices that were largely unexpected. He said in contrast domestically generated inflation has been subdued.

"The effect of the factors that temporarily pushed up inflation is now waning," he wrote.

"The [Monetary Policy] Committee's best collective judgement is that CPI inflation will continue to fall back to around the target by the end of 2012.

"In coming months, that further moderation is likely to reflect the declining contributions from petrol prices and any remaining VAT impact, together with recently announced cuts to domestic energy prices."

He added however that the pace and extent of the fall remained "highly uncertain".

Michael Saunders, economist at Citigroup, said inflation was likely to drop below 3pc in March or April, before falling below the 2pc target around September.

The Bank will publish its latest set of quarterly forecasts for growth and inflation in the February Inflation Report tomorrow. They are expected to reflect a medium-term outlook for lower inflation, helping to justify the MPC's decision last week to expand quantitative easing - which is potentially inflationary - by £50bn to £325bn.

Sir Mervyn wrote in his letter to the Chancellor that the MPC would pay close attention to developments in the eurozone in the coming months, and their implications for the banking system, credit conditions and growth.

In a change of tone, he stressed that monetary policy alone could not drive the essential transition required of the UK economy, referring to an accepted need to move towards a greater reliance on exports and business investment, and away from imports, and consumer and public spending.

"While the MPC can use Bank Rate or asset purchases to help ease the transition, there is a limit to what monetary policy can achieve when real adjustments are required," he cautioned.

Nevertheless the lower inflation figures will have provided some relief for George Osborne, under renewed pressure after credit ratings agency Moody's put Britain's treasured AAA rating on negative watch on Monday night.

The Retail Prices Index, which includes mortgage costs, fell more sharply than expected to a near two-year low of 3.9pc in January, from 4.8pc in December. Economists had forecast a fall to 4.1pc.